In order to carry out business activities in Indonesia, the company is required to be incorporated as a limited liability company in Indonesia. This process is handled by BKPM for business areas that do not require a special license.
Certain business areas require a foreign company to establish a local partner and are allowed up to a certain percentage of ownership depending on the sector. The specifics of this are covered in the Negative Investment List (See Presidential Decree No.36/2010 Negative Investment List).
When choosing which business type to operate under, investors also need to think about whether using a local partner would be more effective in penetrating the local market. For example, selling a product that requires a direct customer distribution channel may benefit from the local knowledge and connections of an Indonesian partner.
Note: Global Business Guide offers an outline of the procedures for user reference and not as legal advice, always seek certified legal advice before going ahead with any investment.
A 100% or majority foreign owned company is called a PMA and is obtained through the Indonesia Investment Coordinating Board (BKPM). The advantages of this type of company are that it gives the foreign investor full control over the direction of the company and reduces the risk in finding a suitable local partner. Non equity partnerships can still be established with local Indonesian companies for business services such as marketing.
Investment licenses are granted for 30 years and theoretically require that after 15 years of operation, a 5% minimum share is divested to domestic ownership for companies engaged in natural resource extraction such as mining. PMAs are under the form of a limited liability company Perseroan Terbatas or PT.
New foreign investors are entitled to the incentives of an exemption of tax on capital goods imports that are needed for production for 2 years (BKPM Law No.12/2009) and streamlined access to land in Special Economic Zones. A tax holiday of 5 years is under discussion by the Ministry of Finance in business sectors such as renewable energy and manufacturing which add value to primary products.
For most business areas, companies can set up a representative office in Indonesia. Based on Ministry of Trade Regulation No.10/2006, the company cannot engage directly in sales and is rather for marketing, buying and distribution purposes. Representative office set up is through application to BKPM for companies wishing to engage in areas of business under BKPM’s juristiction and regional representative offices. Otherwise it is through authorisation from the relevant ministry:
This is the most common form of entry into the market given the limitations on foreign ownership. This methods provides access to the partners distribution network and makes navigating through bureaucracy and other cultural hurdles easier. Finding a local partner with which one can ‘fit’ and share the same vision with is more of a challenge. It requires foreign investors to come to the table with a compromising and flexible attitude towards the business culture.
Joint Ventures are particularly useful when engaging in an area that involves production as well as distribution to overcome the bottlenecks in transportation and bureaucratic customs procedures.
For Joint Ventures:
A draft of the Joint Venture Agreement between the two parties must be submitted with the application. A copy of the identification card (KTP) of the Indonesian individual that the joint venture will be conducted with is also required as well as a copy of the tax registration code (NPWP) of the individual or company.
Foreign companies entering into a partnership with an Indonesian Small or Medium Enterprise must submit the Partnership Agreement between the two parties and a letter from the Indonesian company confirming their status as an SME.
For Representative Offices:
To establish a representative office, an Application for the Establishment of a Representative Office must be filled out.
According to BKPM Decree No.1/2008, applicants must submit the following documents that have been notarised in their country of company domicile and approved by the Indonesian Embassy in that country who issues a Letter of Notification:
These documents must be submitted to the relevant ministry or to BKPM depending on the business sector.
For a Foreign Construction Representative Office, the company also requires a license from the Institution of Construction Services Development.
Source: World Bank Doing Business Report, 2011
Global Business Guide Indonesia - 2012
Population: 255 million (estimated, 2015)
Currency: Indonesian Rupiah
Nominal GDP: $895 billion USD (IMF, 2015)
GDP per capita: $3,415 USD at Current Prices (IMF, 2015)
GDP Growth: 4.7% (2015)
External Debt: 34.77% of GDP (BI, Q3 2015)
Ease of Doing Business: 109/189 (WB, 2015)
Corruption Index: 107/175 (TI, 2014)